Miller Magazine Issue 109 / January 2019

PAKISTAN 85 MILLER / JANUARY 2019 Wheat is perhaps the most important food crop in Pa- kistan, and being the main source of energy for large segments of the population. It occupies a central place in food security and nutrition policies. According to “A Va- lue-Chain Perspective on Wheat Flour Fortification in Pa- kistan” research paper written by Natasha Ansari, Rashid Mehmood and Haris Gazdar, the government has a stra- tegic position in the wheat flour value chain even though private sector stakeholders are responsible for virtually all of the wheat grown and processed in the country. The government’s role in the procurement, storage and transportation of wheat makes it the leading market pla- yer that influences price, availability, and investments in the sector. Although the government also enjoys admi- nistrative and regulatory authority, its strategic position is largely due to the volume of its market intervention. Pakistan grows around 23 million tons of wheat an- nually and domestic output is sufficient, in most years, to satisfy consumer demand. Pakistan’s farm economy is almost entirely made up of private farmers, and there are four main channels to which the wheat crop is directed . First, farmers retain part of the crop for selfconsumpti- on and for seed. Second, there are in-kind payments to various stakeholders, including harvest labourers. Third, grain is sold at controlled prices to government agencies. Fourth, part of the harvest is sold to private buyers — mostly grain traders and flour millers. There are no precise data about other uses of the crop but it is estimated that private traders and mills directly buy between 15 and 19 per cent of the harvest. Far- mers are, therefore, thought to retain over 60 per cent of the harvest in the first instance. Only around half that amount is kept for self-consumption or seed. The rest is either used as in-kind payments (including to harvest labourers), or sold to private sector buyers. There are two alternate value chains for producing whe- at flour: small-scale, traditional, communitylevel chakkis and large-scale flour mills spread across the country. Vir- tually all the grain which does not enter the market, such as that which is retained for self-consumption by farmers or is earned by labourers as in-kind payment, goes th- rough a local chakki. For grain that customers bring for grinding, the chakki charges a small fee — 2 rupees per kg in rural areas and 4 rupees in Karachi. The chakki system is the predominant value chain in the wheat-growing rural areas of Punjab and Sindh, by which grain is crushed into whole wheat flour. Chakkis are not limited to rural areas. They are common in cities too. Chakkis also buy grain from the market. This is par- ticularly the case in urban areas where customers do not, typically, have their own grain stores. The second method is processing through large-scale flour mills spread across the country. These mills acquire grain from two sources. Licensed mills are supplied grain from government stocks at subsidised prices, and they are also free to buy grain from the open market. Nearly all of the grain procured by the government eventually ends up being processed in a licensed flour mill. Mills produce a range of varieties of flour, from ‘regu- lar’ to ‘fine’ qualities. Among consumers there is a strong identification of regular flour with flour made from go- vernment-supplied grain, even though there is no rest- riction on millers using grain from private suppliers to produce regular flour. Most of the licensed flour mills are represented in the Pakistan Flour Mills Association (PFMA). The PFMA web- site mentions a total of 915 mills operating across the country. Not all mills are registered with PFMA however, and different sources provide varying numbers. It has been noted that the reported output capacity of licen- sed mills in Pakistan far exceeds market requirements. No data was found on the number of industrial-scale flour mills which are not licensed or are not members of PFMA. The relationship between government agencies (pri- marily the provincial food department) and privately-ow- ned licensed flour mills currently revolves around three parameters. One, mills are assigned quotas according to their processing capacities and their supply of govern- ment-procured grain is determined by this quota. Two, a mill is obliged to produce a requisite quantity of regular flour against the supply of grain. Three, the ex-mill price of regular flour, whether it is made from government-supp- lied grain or grain acquired from the market, is agreed between the government and the mills association. This price is set by taking into account processing costs and other margins which are negotiated between the millers and the government. Industry sources claim that while all atta is subject to the food department’s price regulation, ‘fine’ qualities are actually maida (all-purpose flour) whi- ch has low bran content and is therefore exempt. Wheat economy and milling industry in Pakistan